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Making your portfolio go — without fossil fuels

While there is much talk about the “death spiral” of the Affordable Care Act, a greater death spiral may be confronting the fossil fuels industry — despite prodigious efforts by the government to prop it up.

Honda motors announced earlier this year that by 2030, it anticipates that two-thirds of the cars it sells will be hybrids or fully electric. The Chevrolet Bolt now goes more than 200 miles on a charge and is priced around what many spend on a tricked-out pickup truck or an SUV. Tesla is expecting to start delivering its $35,000 entrant into the fully electric market later this year, and its flagship 250-mile Model S sells for $70,000, far below the initial sales price of $100,000 five years ago.

Renewable energy production is exceeding virtually all projections of where the numbers would be by this time, and plains states such as Kansas and Nebraska are becoming hotbeds of wind energy production.

What all this means is that traditional fossil fuel companies may be the “death spiral” to watch, and, as an investor, to consider avoiding. One look at the 10-year investment results of select industry mutual funds offers a hint of the underlying story.

Energy funds are languishing at basically the bottom of virtually all major categories of investment objectives. At stockholder meetings, investors are asking oil companies, for example, to offer a comment in their annual report as to the effect of global warming on the value of their reserves, for starters, and the future of the company in general.

In addition, college endowments are being pressured to divest themselves of fossil fuel stocks, and socially responsible mutual funds make it a point to avoid the fossil fuel industry. Adding all this up creates a world view that doesn’t bode well for this investment type — and we haven’t started talking about the exponential gains of solar. This is occurring in places like India and China, which have combined populations roughly 10 times the size of ours. Both countries are way ahead of predictions made five years ago.

So the question for investors is to ask how to avoid this industry but not throw the baby out with the bathwater. For example, the S&P 500 index includes our largest oil company, which makes up 1.65 percent of that index fund’s entire value.

The so-called “Dogs of the Dow” consists of the 10 Dow Jones stocks that pay the highest dividend as a percent of their current stock price. They include our two largest oil companies, which is the case not because the dividend has been so large but in part because the stock prices have languished compared with everything else.

There’s something to be said for an investment strategy that includes just Dow Jones stocks, with the exception of the oil companies on the list. What this requires is someone with time on their hands, who can cobble together his or her own fund of individual stocks that include just the current Dow securities minus fossil fuels. A Dow ETF or mutual fund annual report will provide you with the list and proportions.

A do-it-yourself exercise with just a few minor annual adjustments will provide what amounts to an index fund with no annual expense ratio. Considering the advice in John Spooner’s book “Do You Want to Make Money or Just Fool Around?” this effort could fall in the “fool around” category, but as a concept for beating the market it could be a winner.

If nothing else, it may offer some smug satisfaction.

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